Monday, October 5, 2015

Foreign bidding war underway for $50 billion Australian submarine contracdt

France, Germany, Japan fighting it out

Jamie Smyth, Financial Times
5 October 2015

The French bidder vying to build Australia's new fleet of submarines is pledging to create thousands of local jobs and share sensitive military technology, as the politically charged contest for the A$50bn contract intensifies.
Armed with brochures referencing Paris's wartime alliances with Canberra, Sean Costello, chief executive of DCNS Australia, told shipyard workers, executives and politicians at a meeting in Adelaide last week that his company was best placed to meet their needs. The stealth technologies DCNS was offering to share, he said, were "the 'crown jewels' of French submarine design and have never been offered to any other country".
Further highlighting existing defence ties between the two countries, France's Thales Group on Monday secured a A$1.5bn (US$1.1bn) contract to build 1,000 armoured vehicles for Australia's defence forces.
As Mr Costello delivered his marketing pitch last week, Germany's navy chief was in Adelaide meeting executives at state-owned shipbuilder Australian Submarine Corporation promoting Berlin's rival bid. This week Japanese officials and industry executives fly to the Pacific International Marine Exposition in Sydney to press their case for designing and building eight submarines to replace Australia's ageing fleet of Collins submarines.
Slick lobbying campaigns highlight the contract's huge value: an estimated A$20bn build and A$30bn maintenance programme. They also reflect the politicisation of a process that could support thousands of jobs in Adelaide while binding Australia into a defence relationship with a foreign power.
Support for a Tokyo proposal to build the vessels in Japan was a factor in the downfall of Tony Abbott, who was deposed as prime minister last month by fellow Liberal Malcolm Turnbull.
"The submarine issue was one of the things that weakened Tony Abbott's prime ministership," says Andrew Davies, a director at the Australian Strategic Policy Institute. "His pursuit of a deal with Japan was seen as one of the 'captain's calls' which led to his difficulties."
The deal would have strengthened defence ties between Australia and Japan, both allies of the US, which is concerned about rising Chinese assertiveness and a submarine arms race in the Asia-Pacific region. But Mr Abbott underestimated the strength of feeling in the shipbuilding heartland of South Australia, a state reeling from the imminent closure of the car industry and a mining downturn that has pushed unemployment to 8 per cent - the highest in Australia.
"I'm now very confident the submarines will be built in Australia," says Sean Edwards, one of seven South Australian Liberals who voted to oust Mr Abbott.
The departure of Mr Abbott, who enjoyed a close relationship with Japanese Prime Minister Shinzo Abe, has alarmed Tokyo, which has no experience of competing for overseas defence contracts or overseeing the design of submarines built in foreign shipyards. Amid the new political climate, Tokyo signalled last week it was willing to build the submarines in Adelaide alongside ASC.
Hugh White, professor at the Australian National University, says the pressure for a local build means Tokyo has slipped from frontrunner to outsider in the contest, as Mr Turnbull is unlikely to share Mr Abbott's strategic agenda.
"The odds swing towards the European competitors, who have much better track records as submarine exporters and fewer of the regional strategic complications that a deal with Japan might bring," he says.
Analysts say Japan is the only bidder with a submarine in operation large enough to meet Australia's requirements, even though its Soryu design would need to be adapted to extend its range. DCNS also lacks Tokyo's experience integrating the US weapons systems Australian submarines will use.
But Japan risks being outmanoeuvred by experienced competitors that have hired local executives to promote their bid. DCNS's Mr Costello is a former executive at ASC and chief of staff to a former defence minister. German shipbuilder ThyssenKrupp Marine Systems has hired John White, who previously managed Australia's construction of the German-designed Anzac frigate.
"ThyssenKrupp Marine Systems has contracted 163 submarines for 20 navies around the world since the 1960s, with more than 50 of these built in customer's own countries," says Mr White, who has floated the prospect of TKMS buying ASC as part of any submarine deal.
All three bidders are concentrating their efforts on either an Australian build or a hybrid option, whereby initial work would begin abroad before shifting to Adelaide.
"This would be a faster and cheaper option," says Mr Costello, while insisting DCNS has no preference.
A TKMS internal document shows the company proposes to train Australian workers in German advanced manufacturing techniques and establish Adelaide as an Asia-Pacific shipbuilding hub - an idea gaining traction with unions and supply companies.
"We don't mind which design wins but they should all be built in Australia," says Glenn Thompson of the Australia Manufacturing Workers Union. "But the only bidder publicly committing to to a full transfer of their technology and build from the start are the Germans."

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My blog concentrates on submarine history and modern strategy. I plan to sprinkle in commentary on anything of interest. My publisher is the U.S. Naval Institute Press. Information about my books is available at USNI.com. I also have an interest in Bucks County, Pa. history and write a weekly column for the Bucks County Courier Times and The Intelligencer. My new book on the subject is "Bucks County Adventures" available through Amazon.com.